The Role of Institutional Development Indexes in Attracting Foreign Investment in Selected OPEC Member Countries

The present survey explores the effects of institutional quality on foreign direct investment in selected OPECmember countries. To this end, the annual data of foreign direct investment, institutional quality index, grossdomestic product, and freedom of the trade index in Angola, Algeria, Ecuador, Iran, Iraq, Kuwait, Libya,Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela were employed for the time period 1999-2010. The results of Im, Pesaran and Shin unit root test (2003) and Levin, Lin and Chu test (2002) revealedthat all variables are stationary. As Pesaran test (2004) and Frees test (2004) show cross-sectional dependencecorrelation among the sections, the seemingly unrelated regressions (SUR) model was used. Estimationresults disclosed that besides gross domestic product and freedom of the trade that have a positive andsignificant effect on attracting foreign direct investment, the effect of institutional quality on foreign directinvestment is positive and significant too in the countries under study. Also, the results showed that amonginstitutional development indexes, political stability and absence of violence, government effectiveness andcontrol of corruption have a positive and significant effect on foreign direct investment in the countries understudy.

Keywords:

Foreign DirectInvestment , InstitutionalDevelopment Index , Seemingly UnrelatedRegressions , OPECMember Countries